3.

Business can be classified on various forms depending upon the ownership. The classification
and major difference in various forms in based on ownership, liability on owners,
representation and motives. Below are the various forms with its Pros and Cons :
Sole Proprietorship:
. It is a business owned by a single individual. For tax and legal liability purpose, the owner
and the business are one and the same. The proprietorship is not taxed as separate entity. Note
that the earnings of the business are taxed at the individual level, whether or not they are
actually in cash. There is no vehicle for sheltering income. For liability purposes, the
individual and the business are also one and the same. Thus, legal claimants can pursue the
personal property of the proprietor and not simply the assets used in the business.
Advantages of a Sole Proprietorship:
 It is simple and low cost. You are not required to file with the government, nor are
any legal charter required. No registration is required for a sole proprietorship.
 The owner or proprietor is in complete control of business decisions.
 Profits flow directly to the proprietor’s personal tax return; they are not subject to a
second level of taxation
 The business can be dissolved as easily and informally as it was begun
Disadvantages of the Sole Proprietorship
 The amount of capital available to the business is limited to the owner’s personal
funds and whatever funds can be borrowed.
 unlimited liability for all debts and legal judgments incurred in the course of business.
 The entity has a limited life; it exists only as long as the owner is alive.

PARTNERSHIP FIRM:- A Partnership is one of the most important forms of a business

organization, where two or more people come together to form a business and divide the
profits thereof in an agreed ratio. In India, partnerships are governed by the Indian
Partnership Act 1932 (the Act).
Some possible pros:
 Shared cost of start-up.
 Shared responsibilities and work.
 Shared business risks and expenses.
 Complementary skills and additional contacts of each partner can lead to the
achievement of greater financial results together than would be possible apart.
 Mutual support and motivation.

Some possible cons:

  Partners in a general partnership are jointly and individually liable for the business
activities of the other. If your partner skips town, you'll be liable for all the debts, not just
half of them.
 Shared profits.
 You do not have total control over the business. Decisions are shared, and differences
of opinion can lead to disagreements, a "falling out," or even one partner buying out the
other.
 A friendship may not survive a partnership. Keep in mind John D. Rockefeller's
famous words: "A friendship founded on business is a good deal better than a business
founded on friendship."

There are three kinds:

A general partnership is the default version of a partnership. Each partner represents the
organization and has equal right to participate in the management, decision making and
control of the business, equal sharing of profits and loss.
A limited partnership has one partner with unlimited liability while everyone else involved
has limited liability.
A limited liability partnership gives limited liability to every owner. This means that each
partner is protected from financial and legal mistakes of the other partners. As a result, a
limited liability partnership has some elements of both partnerships and corporations.

HINDU UNDIVIDED FIRM (HUF):- HUF means Hindu Undivided Family. You can save
taxes by creating a family unit and pooling in assets to form a HUF. HUF is taxed separately
from its members. A Hindu family can come together and form a HUF.
Benefits:-
 Tax savings
 HUF is automatically created at the time of marriage
 Once a HUF is formed it must be formally registered in its name. A HUF should have
a legal deed.

Disadvantages:
 A limited liability partnership gives limited liability to every owner. This means that
each partner is protected from financial and legal mistakes of the other partners. As a
result, a limited liability partnership has some elements of both partnerships and
corporations.
 A limited liability partnership gives limited liability to every owner. This means that
each partner is protected from financial and legal mistakes of the other partners. As a
 result, a limited liability partnership has some elements of both partnerships and
corporations.
 A limited liability partnership gives limited liability to every owner. This means that
each partner is protected from financial and legal mistakes of the other partners. As a
result, a limited liability partnership has some elements of both partnerships and
corporations.
3. Corporation
A corporation is a business organization that has a separate legal personality from its owners.
Ownership in a stock corporation is represented by shares of stock.

The owners (stockholders) enjoy limited liability but have limited involvement in the
company's operations. The board of directors, an elected group from the stockholders,
controls the activities of the corporation.

In addition to those basic forms of business ownership, these are some other types of
organizations

PVT LTD
A Private Limited Company is a company which is privately held for small businesses. The
liability of the members of a Private Limited Company is limited to the number of shares
respectively held by them. Shares of Private Limited Company cannot be publicly traded.

Advantages of Private Limited Company:

 Limited risk to personal assets

 Limited Liability for members.
 shares are transferable by a shareholder to any other person.

 no such minimum capital compulsion. Therefore there is no pressure of

fund requirements.
 It is easy to fetch funding in a private limited company by transferring of
shares.
 A company has ‘perpetual succession’, that is continued or uninterrupted existence
until it is legally dissolved.

Disadvantages of a Private Limited Company: it restricts the transfer ability of

shares by its articles.
 number of members in any case cannot exceed 50.
 it cannot issue prospectus to public.
 In stock exchange shares cannot be quoted.

PUBLIC LTD CO.

 is a company that has limited liability and offers shares to the general public. It’s stock can be
acquired by anyone, either privately through (IPO) initial public offering or via trades on the
stock market.

ADV:
 Growth and expansion opportunities
 Spreading risk
 More capital can be pooled whenever needed
 Limited liability
 It gives a business more resale value.
 Transfer of shares/ securities to anyone

DIS
 Profit needs to be shared with investors and dividends needs to be provided regularly.
 More vulnerable to takeovers
 Starting up a Public Limited Company requires huge cost, time, and effort.
 Control of the company can be taken away. If a group of shareholders is able to take a
majority control through the purchase of shares, then they can dictate the direction the
company takes.
Thus, from all the above business forms, General Partnership is the most suitable for a start-
up by Jack and Jill. And here both will have equal liability and equal share of profit and equal
responsibility to run the business. This will help in avoiding conflict in future as well as both
have equally contributed. Since it is a start up and both are new to business so being partners
will be helpful to each other as no one person has to pool all the money alone and partnership
will reduce the risk to half. Since, both know each other well so this type of business is
sutiable without any third person or party intervening in the business decision.